The recovery rally in most risk asset markets around the globe is continuing for the second trading session in a row. Market participants are digesting the outcome of the UK vote and appear to be coming to the conclusion that the implications may not turn out to be as severe as originally thought when the vote was first announced last Thursday.
So far in the early U.S. trading session crude oil prices are higher along with most global equity markets around the world while the U.S. dollar Index is on the defensive with the BP, euro and yen all higher. The global market appears to be in a combination round of further short covering with a light risk on sentiment. The above said the caution flag is still flying as the current rally could be simply a short-term bounce in a broader down move.
Crude oil prices were given an additional boost late yesterday afternoon when the API reported an across the board draw in crude oil and refined product inventories. This morning the more widely followed EIA weekly snapshot will be released at 10:30 am EST. As a caution the API data is a noisy data set and often times is not in sync with what the EIA data presents.
In addition Reuters is reporting there is a potential oil workers’ strike looming in Norway. If the workers do strike it could have an impact on exports of crude oil from Norway. On the other hand both Canadian and Nigerian production seems to be on the rise after a major portion of crude oil from both of these regions were shut in for several months.
Overall the oil markets remain cautious as there remains a high level of uncertainty and volatility over the markets--that is not going to subside anytime soon. The next plateau for oil is for the spot Brent and WTI contracts to once again overtake the $50 per barrel level for traders and investors to regain confidence that the upward rally that emerged back in the middle of Q1 of this year may be ready to start a new leg to the upside.
On the financial front equity markets were higher across the board. As previously discussed above many risk asset markets… including the equity markets are in a corrective move higher. The broader EMI Global Equity Index increased by 1.52% during the last 24 hours. The EMI Global Equity Index is currently back into positive territory for 2016 by 0.1% having now recovered all of the losses resulting from the UK vote outcome. Seven of the ten bourses in the Index are still in negative territory for 2016 with Japan holding the bottom spot in the Index with Brazil on top of the leader board. Global equities are currently a positive price directional driver for the oil complex.